Note: Production taxes capture payroll taxes, stamp duties and land tax incurred through business production, but not taxes on profits or other income (e.g. company income tax).

Source: ABS, Government benefits, taxes and household income

Australia’s individuals’ income tax regime is very progressive compared with other countries. Australia has relatively low average and marginal tax rates at low income levels, but relatively high marginal tax rates at high income levels.

Many other countries levy a social security contribution on employee earnings, with the same flat rate applied to everyone. These ‘contributions’ are notionally allocated to pay for unemployment and aged care allowances over a person’s lifetime. As a flat rate tax, social security contributions have a greater impact on low income earners and their discretionary spending options.

Australia does not apply a separate social security contribution. Pension costs are funded from Australia’s main revenue stream and supplemented by the private superannuation system.

A trade-off for Australia’s low average individuals’ tax burden is that the statutory and effective tax rates, produced by the interaction between the tax system and tightly targeted transfer system, are comparatively high by international standards.

For example, a single person in New Zealand earning NZ$40,000 a year would pay 18.95 cents in tax on their next dollar of income and pay annual tax of NZ$6,6001. In Australia, a single person earning A$40,000 a year would pay 36 cents in tax on their next dollar of income and pay annual tax of A$4,9472.